RCEP: Why India is not the part of World’s Biggest Trade Agreement?

The Regional Comprehensive Economic Partnership or RCEP is a trade agreement involving 10 ASEAN nations namely (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and five nations with which they have a free Trade Agreement, those are (Australia, China, Japan, New Zealand and South Korea). RCEP came into existence at the 37th ASEAN Summit hosted virtually by Vietnam. It is the world’s biggest trade deal comprising 15 countries, 2.2 bn people, combined Gross Domestic Product of $26.2 tn Till recently, India was also a part of the trade deal, which it decided not to continue with. We will see the reasons why India took such an important decision of not joining the RCEP.

First let’s see what the conditions to join the RCEP trade deal are:

 

RCEP Requires members to:

1. Decrease tariffs and non-tariff barriers against each other.
2. Encourage investments, economic and technical cooperation like Foreign Direct Investments, FIIs, etc.
3. Protect intellectual property rights (IPR), etc.

Collectively, the member countries command 25% of global Gross Domestic Product, 30% of global trade. This will boost trade, economic growth and employment in each of these member countries. Help emerging economies to catch up with the rest of the world by lowering tariffs and promoting investment. But India opted not to join it, citing following reasons:

• $100 bn trade deficit with RCEP countries: In this, China alone accounts for $54 bn. Decreasing tariffs and import barriers will further raise the trade deficit. Our MSME, automobile, steel, electronic goods companies cannot compete with other technologically advanced nations. So, India wants separate tax on Chinese imports.

• India’s expertise is mostly liquid milk products with limited shelf life and high transport cost. So we cannot export much. Whereas New Zealand's expertise is solid milk products (milk powder, cheese etc.) which can be exported easily with long shelf life. So Indian dairy industry will suffer if India joins the free trade agreement.
• Southern India’s plantation farmers are afraid of cheaper tea, coffee, rubber, cardamom and pepper from Malaysia, Indonesia and other RCEP nations.
• India’s demand for automatic trigger safeguard mechanisms: if imports increase beyond a certain limit, it will be allowed to impose tax on imports automatically.
• Ratchet Obligations: This is an important concept in the global trade that once you make a commitment, then you cannot revert it. India is against this obligation and demanded certain impositions.
• RCEP requires free flow of data, where companies can store private data in foreign servers of RCEP countries. India’s weight for data localization, that is to be stored in local servers citing national interest and strategic interest.
• India demanded stricter rules of origin to prevent dumping from China.

·         The agreement does not cover environmental protections and labour rights.

 

India should have joined the RCEP

 

·        The chief Economic Advisor, K. Subramaniam has said that India will have to eventually shed-off its big but poor mentality.

·        International agreements always requires some sort of bargaining.

·        Competition with advance nations would bring excellence in domestic economy.

·        If we do not join, our exports cannot compete in RCEP nations. Higher fares on India exports viz a viz other RCEP exports would result in fall in the demand for Indian goods.

·        RCEP conditions was still ‘less strict’ in comparison to India’s outgoing FTA negotiations with USA and European Union.

·        It will support economic recovery amid pandemic and contribute to developing supply chains.

·        It was a low-hanging fruit, and we should have signed it.

 

Conclusion

 

While it is true that India could have gained in certain export sectors by singing RCEP agreements. But its present format did not fully address India’s issues and concerns regarding the protection of the domestic industry. So we have opted not to sign it.

The remaining member nations have signed the RCEP agreement in 2020 and they are trying to convince India to get onboard.

India has not permanently shut the doors for negotiations. In future we may sign it, if our concerns are addressed.

                                                               

You can read our article on Changing Political Order here.

 

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